What are the most cost efficient puts to hedge?

H

hedger_grower

Hey folks, I was wondering which puts to pick up to hedge the index ETF (SPY, IWM) in terms of Delta and DTE.
What are the best conditions to enter the trade/hedge in terms of IV etc.?
 
Buy SPY puts when the VIX is low. Possibly, sell some further OTM calls to partially offset the cost of the puts.
 
hedger_grower said:
Hey folks, I was wondering which puts to pick up to hedge the index ETF (SPY, IWM) in terms of Delta and DTE.
What are the best conditions to enter the trade/hedge in terms of IV etc.?
More...
It depends on your criteria: what you mean by best/efficient. Using gain as the criteria, I did some backtest a while ago on QQQ using 10-years of historical data and found picking 70% moneyness and 6 month DTE produced the most gains. In the backtest, the hedge is always there (a new one is created if the old one expires), so there isn't really a timing of entering a hedge. Of course, it could have just overfitted the historical data.
 
The obvious answer is to buy when Vol is low..If not collar...

More to the point,without going greek,how much are you willing to pay for protection??

2/5/7/10 % of spot?? (annualize if you wish)

Most importantly,define hedge..

Quiz of the day..What is long stock + long put equivalent to?
 
Keep in mind that you can always set up partial hedges instead of outright put-buys. Using spy as example, and using expiration jun16'22 for simplicity, instead of buying a 440 put for around 23.00, buy a putspread 440-400 for around 10.50. This is offcourse a tradeoff for less 'protection' vs less premium paid, so it will always be a choice. If you think the market will present you with a golden opportunity when it goes below 400 this could a nice way to pay less for your 'insurance'.
What's also possible is to 'overprotect' yourself by buying more of these spreads to offset your portfolio, and sell a few short dated (slightly itm) puts to offset the cost of the spreads.
 
taowave said:
Quiz of the day..What is long stock + long put equivalent to?
More...

Long Stock / Long Put synthetically equiv to Long Call at same Expiry / Strike as Long put

But in my experience you are wasting your time with synthetics with retail punters who in the main do not want to understand / accept synthetics ... they much prefer to discuss covered calls / the wheel strategy etc ... than recognise it is the same as just selling / rolling puts
 
This is for my 401k account. Restricted to level 2 options - sell cash protected puts. I can see how to do synthetic spreads but requires lots of capital because I have to either buy stock or keep have cash reserves if selling puts. Anyways, better than nothing.
 
hedger_grower said:
This is for my 401k account. Restricted to level 2 options - sell cash protected puts. I can see how to do synthetic spreads but requires lots of capital because I have to either buy stock or keep have cash reserves if selling puts. Anyways, better than nothing.
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Did you need to do anything to enable options trading in your 401k account? I have a 401k account managed by TDA, but they just said no when I asked about trading any options.
 
LM3886 said:
Did you need to do anything to enable options trading in your 401k account? I have a 401k account managed by TDA, but they just said no when I asked about trading any options.
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Fidelity allowed me to do that through Brokerage link option.
 
Options trades are prohibited for 401k plans. If the 401k is from a prior employer, you can rollover the 401k into an IRA. If you do this with TDA, you may then trade options if you meet the requirements of TDA (prior trading experience, options experience, account balance, net worth, and whatever else TDA will look at before enabling option trading).
 
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